Persimmon Homes Ltd v Bovis Homes Ltd (Rev 1)

This is an appeal from the order dated 18 January 2010 of HH Judge Purle QC, sitting as a High Court Judge, by which he granted, on the application of the Respondent, Bovis Homes Ltd (“Bovis”), summary judgment for specific performance of a “put” option for the purchase by the Appellant, Persimmon Homes Ltd (“Persimmon”), from Bovis of land lying to the south of Oakland Avenue, Peterborough (“the Property”).

Bovis and Persimmon carry on the business of residential property development. By an agreement made on 21 December 2007 (“the Sale Agreement”) Bovis purchased the Property and other land (subsequently re-transferred to Persimmon) from Persimmon for a total purchase price of £9,062,500. The intention was that Bovis should develop the Property. Persimmon was to carry out substantial services, in particular the construction of a bypass known as the Stanground Bypass (“the Bypass”). Clause 18 gave Bovis a put option entitling it to require Persimmon to re-purchase the Property, effectively for the price that Bovis had paid for it, if the Bypass was not opened to the public by 31 October 2009 (“the Option”).

Persimmon undertook the construction of the Bypass. It was to be part dual carriageway and part single carriageway. Persimmon held an opening ceremony on 30 October 2009. It was used by the public from about 11.00 pm on that day. Their use was, however, restricted. Until after 2 November 2009 one lane of the dual carriageway section of the Bypass remained coned off, and the whole of the Bypass remained subject to traffic management measures, with a temporary speed limit while work associated with its construction continued.

Bovis considered that the Bypass had not been “opened to the public” by 31 October 2010 for the purposes of clause 18 of the Sale Agreement. It served a notice, deemed under the terms of the Sale Agreement to have been served on 2 November 2009, exercising the Option. Persimmon took the view that the Bypass had been opened to the public by 31 October 2009 for the purposes of clause 18, and that the notice purporting to exercise the Option was invalid and of no effect. It refused to repurchase the Property.

Bovis issued a Claim Form on 26 November 2009 claiming specific performance of the Option and other relief.

Clause 10 the Sale Agreement required Persimmon to use reasonable endeavours to construct “the By-Pass”, to secure its adoption as a highway maintained at the public expense, and until adoption to maintain it in good and substantial repair. So far as relevant to this appeal, the provisions of clause 10 were as follows:

Use reasonable endeavours by the Target Serviced Date but in any event shall by the Serviced Date complete the construction of the By-pass and complete the construction of the footpaths carriageway and kerb races of the Access Road to base course level to adoptable standards and in a good and workmanlike manner using good quality materials in accordance with the plans and sections approved by all the relevant authorities and the specification of such authorities and in accordance with the building regulations planning approvals (and conditions imposed thereon) and other relevant Statutory Requirements to

Subject to clause 10.3 the Seller will:

Use its reasonable endeavours as soon as possible after the date hereof to enter into the New Section 38 Agreements and New Section 278 Agreement and supporting bonds (if required by the relevant highways authority) in order to secure the adoption of the Access Road and the By-Pass as highways maintainable at the public expense;

...

comply with all its obligations in the New Section 38 Agreements and New Section 278 Agreement and indemnify the buyer its assigns owners or occupiers of the time being of the Property against all liabilities of whatsoever nature in connection with those Agreements except to the extent of any damage caused or permitted by the Buyer its workmen agents or contractors; and

keep the Buyer advised of its progress in securing the adoption of the Access Road and the By-Pass”

Clause 1.1 of the Sale Agreement defined the “Target Serviced Date” to mean 30 April 2009, and the “Serviced Date” to mean 31 October 2009. It defined the “By-Pass” as “the Stanground By-Pass as defined in the s.106 Agreement”. The “s.106 Agreement” was defined as the agreement dated 17 August 2007 made pursuant to section 106 of the Town and County Planning Act 1990 between Peterborough City Council (“the Council”) and various named individuals (“the section 106 Agreement”). Accordingly, Persimmon had to use reasonable endeavours to complete the Bypass by 30 April 2009 and was obliged to complete its construction in any event by 31 October 2009.

Clause 18 contained the Option, which is at the heart of this case. So far as relevant to this appeal, it was as follows:

Clause 1.1 defined the “Buyer’s Option Period” to mean the period beginning with the date of the Sale Agreement and ending 3 calendar months after the “By-Pass Long Stop Date”. The “By-Pass Long Stop Date” was defined as 31 October 2009. That was the same date as the “Serviced Date” in clause 10.1.1.

Accordingly, Bovis could not exercise the Option before 31 October 2009 or after the earlier of (1) 31 January 2010 and (2) the date on which “the By-Pass [was] opened to the public”. As I have said, it is Bovis’ case that the Bypass was not opened to the public within clause 18.3.2 until after Bovis served its notice on 2 November 2009 exercising the Option. It is Persimmon’s case that the Bypass was opened to the public within clause 18.3.2 on 30 October 2010.

I return to the meaning of “the By-Pass” in the Sale Agreement. As I have said, clause 1.1. defined this expression by reference to the definition of “the Stanground By-Pass” in the section 106 Agreement. The latter defined the “Stanground Bypass” as:

Planning permission 03/00507/FUL (“the Bypass Planning Permission”) was full planning permission for:

The Bypass Planning Permission was granted in accordance with various plans, drawing and documents identified in it. They show the single carriageway and dual carriageway sections of the Bypass. The Bypass Planning Permission was granted subject to various conditions. One of them, Condition C8, was as follows:

Finally, it is necessary to mention the planning permission for the development of the Property. This was outline planning permission 03/00842/OUT dated 17 August 2007 granted by the Council for, among other things, residential development comprising 1525 dwellings (“the Residential Development Permission”). Condition C6 of the Residential Planning Permission said:

Clause 9.1 of the Sale Agreement contained a covenant by Persimmon to comply or procure compliance with the section 106 Agreement and the Residential Development Permission.

Bovis served an application dated 27 November 2009 for summary judgment pursuant to CPR Part 24. Bovis served Particulars of Claim dated 7 December 2009. It was alleged in the Particulars of Claim that it was an implied term of the Sale Agreement that: “The Bypass may only be opened to the public when its construction has been completed to a standard suitable for adoption and/or a standard that is to the satisfaction of all the relevant authorities acting lawfully.” It was alleged that the permission granted by Persimmon on Friday 30 October 2009 for public vehicular access onto the Bypass to the extent of one lane in each direction was in breach of the Sale Agreement and did not constitute the Bypass being opened to the public for the purposes of clause 18.3 of the Sale Agreement because the construction of the Bypass was not complete on that day or on 2 November 2009 and the Bypass was not on those dates completed to a standard suitable for adoption or to a standard that was satisfactory to the Council acting lawfully. It was alleged, further, that what was opened on 30 October 2009 was not the Bypass as defined in the Sale Agreement since public access was (then and until 4 November 2009) limited to a single lane in each direction, and the scheme of external lighting required by Condition C8 of the Bypass Planning Permission was not fully installed or functioning. The Particulars of Claim pleaded service of the notice by Bovis exercising the Option in accordance with clause 18 of the Sale Agreement and Persimmon’s failure to repurchase the Property in breach of contract, and claimed specific performance, damages and interest.

The summary judgment application was supported by a witness statement dated 26 November 2009 of Peter Davies, Bovis’ solicitor. He referred to, among other things, the written report of a firm of consulting engineers, JMP Consultants Limited (“JMP”), dated 6 November 2009 (“the JMP Report”), which he exhibited. JMP was instructed by Bovis to inspect the Bypass and report as to whether it was complete and whether it was safe to be used by traffic. Mr Davies also referred to communications between JMP and the engineering department of the Council, which was the highway authority as well as the planning authority, and comments of the safety auditor following an inspection of the road on 29 October 2009. Mr Davies said that JMP had identified seven of the Council’s requirements which should have been completed prior to the opening of the Bypass, which had not been complied with as at 30 October 2009, and many of which had not been complied with as at 4 November 2009. Mr Davies drew particular attention to those parts of the JMP Report in which JMP reported that (1) not all the lighting columns were installed as at 2 November 2009 and other columns, although installed, did not have functioning lanterns, contrary to Condition C8 of the Bypass Planning Permission; and (2) only a single lane was open in either direction on 30 October, with the second lane coned off from the public, and that remained the position on 2 November and 4 November 2009.

Persimmon served a witness statement dated 17 December 2009 of Adam Knight, Persimmon’s Technical Director, in opposition. He gave evidence that the Bypass had been built and was available for public use, and was used by the public, from late on the evening of Friday 30 October 2009; and that, even though one lane remained cordoned off and there were temporary markings, traffic was able to travel along the full length of the Bypass. He said that the Bypass had remained open and had been used continuously by the public since then. He said that the opening of the Bypass on 30 October 2009 occurred with the knowledge of and in consultation with the Council, and neither the Council nor safety consultants had identified any issues which would jeopardise the opening on that day. He responded to the various particular points made in Mr Davies’ witness statement. He acknowledged that there were items which were left to be addressed after 30 October 2990, but maintained they did not prevent the Bypass being opened to the public. He referred to the matters mentioned by JMB as “snagging items”, none of which prevented the Bypass from being opened to the public. He referred to a written report dated 10 November 2009 which he had prepared, on behalf of Persimmon, in response to the JMP Report, and which he exhibited (“Persimmon’s Report”).

Mr Knight also exhibited a draft Defence, which reflected the allegations and denials in his witness statement. The draft Defence accordingly alleged that the Bypass was “opened to the public” on 30 October 2009 for the purpose of clause 18.3 of the Sale Agreement, and that, as at the date when Bovis purported to exercise the Option, the Option had already lapsed and so the notice purporting to exercise it was ineffective.

The application came before Judge Purle in Birmingham on 18 January 2010. In his judgment, having referred to the definition of the Bypass in the Sale Agreement and the section 106 Agreement, to the Bypass Planning Permission and to Condition C8 of that Permission (concerning the scheme of external lighting), he summarised the physical condition of the Bypass at its opening as follows:

The Judge said that it was clear from the evidence that the opening on 30 October occurred with the acquiescence of the Council, and that as a matter of general perception within the local press, the local police force and indeed the Council itself, what was regarded as having opened was the Stanground Bypass. He referred, in particular, to an e-mail from Shahin Ismail of the Council to Daryl Kirkland of Persimmon, and quoted the following passages in it:

The Judge then referred to the following argument of Mr Ashley Underwood QC, counsel for Persimmon:

The Judge rejected that submission. He said:

He said that it followed that the Option was specifically enforceable, and he acceded to the application for an order for specific performance.

Mr Underwood’s starting position was that this is not a case for summary judgment against Persimmon, if only because the full factual setting, in the light of which clause 18 is to be interpreted, is not before the Court. There has been no disclosure, and so, for example, Bovis’ development plan and its “Return on Capital Employed Targets” are not before the Court. They would be material, he submitted, to show the commercial context of clause 18 and its linkage to Condition C6 of the Residential Development Permission. He submitted, moreover, that in the absence of oral evidence and cross-examination it is not possible for the Court to resolve against Persimmon whether the outstanding items of work to the Bypass on 2 November 2009 were immaterial snagging items or items of significance preventing satisfaction of the condition in clause 18.3.2 of the Sale Agreement.

Mr Underwood submitted that, even if such matters did not themselves preclude summary judgment, the Judge was wrong to conclude that, on its proper interpretation, the condition in clause 18.3.2 was not satisfied as at 2 November 2009.

Mr Underwood submitted that the “By-Pass”, within the meaning of clause 18.3.2, plainly existed from the time the Bypass was opened on 30 October 2009. While there were outstanding items, the “part single carriageway and part dual carriageway” bypass at the south of Stanground, as described in the section 106 Agreement and the Bypass Planning Permission, had been physically constructed. He said that the Sale Agreement made an important distinction, in this regard, between the standard to which the Bypass had to be built in accordance with clause 10 and the condition in clause 18.3.2 that it be “opened to the public”. He said that the provisions of clause 10 contemplated that there would be a period of time after completion of the Bypass when it would not have been adopted as a highway maintainable at the public expense by the Council. That was reinforced by Persimmon’s Report, which said at paragraph 3.16:

That was also, Mr Underwood said, acknowledged in written comments of Mr Simon Davies of JMP dated 25 November 2009 in response to Persimmon’s Report, in which Mr Davies accepted that a stage 3 audit is usually carried out after opening when a scheme is built on a live carriageway; and Mr Davies quoted a passage in the Design Manual for Roads and Bridges (HD 19/03) (“the Manual”) to the effect that the audit should usually be undertaken when the highway improvement scheme is substantially complete and preferably before the works are opened to road users, but alternative arrangements could be agreed resulting in the audit being carried out a short time after opening or in phases where a scheme is subject to phased completion and opening. Mr Underwood underscored the same point by referring us to the provisions of the Road Safety Audit provisions of the Manual, and the provisions of an agreement dated 5 August 2009 entered into between the Council and Persimmon and others pursuant to sections 38 and 278 of the Highways Act 1980, which was contemplated in clause 10.2 of the Sale Agreement.

Mr Underwood emphasised that clause 10 of the Sale Agreement was “free-standing”, and that the Bypass in clause 18 was not defined by reference to the provisions of that clause or to any particular standard of workmanship or completion. This, he said, was underlined by the fact that the time specified in clause 10 by which construction of the Bypass had to be completed was the “Serviced Date”, whereas clause 18.3.1 provided for the exercise of the Option by reference to the “By-Pass Long Stop Date”. They were both defined to mean 31 October 2010, but the fact that the parties used two different definitions showed that, for the purposes of clause 18, the Bypass was not required to be completed to any particular contractual standard.

Mr Underwood’s next principal submission was that clause 18.3 must be interpreted in a commercially purposive way, namely against the background of Condition C6 of the Residential Development Permission and the fact that the Bypass was to provide access to the Property. He pointed out that the Residential Planning Permission said expressly:

Accordingly, Mr Underwood said, Condition C6 is to be interpreted as referring specifically to the Stanground Bypass to which the Bypass Planning Permission applied. That, he submitted, is confirmed by Note 7 to the Residential Development Permission, which was in the following terms:

Drawing these points together, Mr Underwood submitted that clause 18 of the Sale Agreement must be read in conjunction with Condition C6 of the Residential Planning Permission. The reason for Clause 18 was Condition C6 since Bovis would not be able to market its residential properties for sale and occupation until Condition C6 was satisfied, and it wished to be able to do so by 31 October 2009 (which was the By-Pass Long Stop Date specified in Clause 18.3.1). Indeed, it is common ground that Condition C6 lay behind Clause 18 of the Sale Agreement. Mr Underwood drew attention to the similarity of the language in Clause 18.3.2 - “is opened to the public” - and that in Condition C6 - “is open to vehicular traffic”. He submitted that, in consequence, giving clause 18 a purposive commercial meaning in its factual context, clause 18.3.2 is to be interpreted as meaning the date on which Condition C6 is lawfully considered by the Council to be satisfied, that is to say, the Council lawfully considers the Bypass to have been constructed and opened to public vehicular traffic.

As to that, he pointed to several matters showing that the Council was so satisfied, as indeed were other relevant persons, prior to 31 October 2009. He referred to the email from Ismail Shahin, the Council’s “Head of Delivery”, to Daryl Kirkland on 6 November 2009, parts of which the Judge quoted in his judgment, and the full text of which was as follows:

In an email sent on 2 November 2009 from Andy Tatt, the Council’s “Asset Management Group Manager”, to Julie Smith, of the Council’s Environment, Transport & Engineering Services Transportation & Development Group, Mr Tatt said:

Mr Underwood also referred to the following email on 3 November 2009 from PC Clive Holgate, a traffic management officer of the “Road Policing Unit” of the Cambridgeshire Constabulary, to Tom Wilson:

In a letter dated 16 November 2009 from Paul Phillipson, Executive Director of Operations of the Council, to HBJ Gateley Wareing, Bovis’s solicitors, Mr Phillipson said:

Mr Underwood submitted, in the light of that correspondence, that the Council plainly thought that Condition C6 of the Residential Development Permission was satisfied, and that the Bypass was safe; and the police were also satisfied. He emphasised that the furthest JMP went was to say: “it can be said that the road is not fully open to traffic”. That was what they said in paragraph 5.3 of the JMP Report, which was as follows:

Mr Underwood conceded that the Bypass was not complete and perfect in all respects on 30 October 2009 or 2 November 2009. He contended, however, that the fact the dual carriageway section of the Bypass was coned off until after 2 November was irrelevant. There is evidence that this, and the traffic management measure restricting traffic speed to 40 mph, were not due to work which needed to be carried out to the surface of the dual carriageway itself, but in order to facilitate completion of work to the abutments to a bridge over the dual carriageway.

So far as concerns the other items to which reference was made by JMP, Mr Underwood said that they were in the nature of snagging, or at least arguably so. He referred to the following comments in paragraphs 53, 55 and 59 of Mr Knight’s witness statement:

So far as concerns the fact that 18 out of 75 light columns were not operational as at 30 October 2010, Mr Underwood emphasised that temporary lighting was provided in their place which gave even greater illumination than if the lighting scheme had been fully operational. He referred to the following comments in paragraph 3.6 of Persimmon’s report:

Mr Underwood submitted that clause 18 of the Sale Agreement required a degree of flexibility in the construction and use of the Bypass. Whether or not the Bypass was, within the meaning of Clause 18.3.2, “opened to the public” is a question of fact and degree. In short, adopting a purposive interpretation of both clause 18 and Condition C6 of the Residential Development Permission, the Bypass was “opened to the public” from 30 October 2010, notwithstanding the snagging defects that remained and the coning off of one lane. The Council had no objections to it being opened on 30 October 2010; the public used it; and it was safe.

Mr Underwood, encouraged by us, did not advance oral submissions on Bovis’s argument for an implied term to the effect that Persimmon would not be authorised to open the Bypass unless and until it was properly completed. Persimmon’s case on that argument, set out in its skeleton argument, and reflecting the views of the Judge, are that, if Bovis is correct, the suggested implied term is not necessary, and, if Persimmon is right, the implied term is inappropriate and inconsistent with clause 18.

Bovis has filed a Respondent’s Notice seeking to uphold the Judge’s order on its alternative argument based on its suggested implied term in the Sale Agreement.

As was candidly admitted during the course of oral submissions on this appeal, what lies behind this dispute is a dramatic fall in the market value of the Property between the date of the Sale Agreement and the date on which Bovis served notice exercising the Option. If the Option has been properly exercised that fall will be borne by Persimmon. If it has not, it will be borne by Bovis. While that explains the economic reality underlying the dispute, it cannot affect the legal merits of each side’s case.

The case and this appeal turn, at the end of the day, on two short points of interpretation of clause 18: did the “By-Pass” specified in clause 18.3.2 of the Sale Agreement exist on 2 November 2009 when the notice exercising the Option was deemed to have been served, and, if it did, was it “opened to the public” on that day within the meaning of that clause ?

In my judgment, the Judge was entitled to find, and correctly determined, that the Bypass was not opened to the public, within clause 18.3.2 of the Sale Agreement, by the time Bovis was deemed to serve notice exercising the option on 2 November 2009, and the Judge was entitled to order specific performance of the option.

I do not accept Mr Underwood’s submission that the Judge was not entitled to order specific performance because evidence relevant to the factual setting of clause 18 of the Sale Agreement was not before the Court. It was common ground on the evidence, the Particulars of Claim and the draft Defence that the explanation for the time limits governing the exercise of the Option in clause 18.3 lies in Condition C6 of the Residential Planning Permission; and, in particular, that Bovis wished to sell the homes it built on the Property as soon as practicable, but it could not do so until Condition C6 was satisfied. Neither Bovis’ development plan, nor its “Return on Capital Employed Targets”, are necessary to establish that fact.

Furthermore, Bovis’s right to exercise the Option does not turn on whether or not outstanding items of work to be done to the Bypass as at 2 November 2009 are properly to be described as “snagging”, which could only be established by oral evidence and cross-examination.

That argument advanced by Persimmon, like the rest of Mr Underwood’s forceful submissions, rests on the proposition that “the date on which the By-Pass is opened to the public”, within clause 18.3.2, is the date on which the Council, as the planning authority, acting lawfully, is satisfied that Condition C6 of the Residential Development Permission has been discharged. That, however, is, in my judgment, a fundamentally wrong approach. While I entirely accept, and it is common ground, that the rationale for clause 18 of the Sale Agreement is to be found in Condition C6 of the Residential Development Permission, the parties did not word clause 18.3.2 by reference to the satisfaction or discharge of Condition C6. The assumption must be that was a deliberate and considered decision since the Sale Agreement expressly refers elsewhere to the Residential Development Permission.

Furthermore, Condition C6 of the Residential Development Permission refers only to “a” bypass of Stanground. It does not refer to any particular bypass, that is to say a bypass to be constructed in any particular manner or in accordance with any particular planning permission. By contrast, the parties to the Sale Agreement have expressly defined “the By-Pass” by reference to the section 106 Agreement and, through that, the detailed Bypass Planning Permission, and clause 18.3.2 must be interpreted consistently with that definition. It will be apparent from what I have said that I reject Mr Underwood’s submission that, having regard to the Residential Development Permission as a whole, Condition C6 is to be interpreted as referring not just to “a” bypass but to the specific bypass to be constructed in accordance with the Bypass Planning Permission. That is not what is says; it must be assumed, in view of the fact that the Bypass Planning Permission was expressly mentioned in the Residential Development Permission, that the choice of language in Condition C6 was deliberate; and to interpret Condition C6 in the manner for which Persimmon contends would make Condition C6 considerably more onerous, and do so unfairly to a developer relying on the express wording of Condition C6.

Accordingly, the issue is not, as Mr Underwood posed it, whether as at 2 November 2009 the Bypass was sufficiently completed, and the outstanding work sufficiently minor, that the Council properly considered Condition C6 satisfied. The requirements of clause 10 of the Sale Agreement are equally irrelevant; as is the fact that the parties contemplated that the Bypass would be opened to the public prior to its adoption as a highway maintained at public expense. The issue is whether the Bypass, as defined in the section 106 Agreement and authorised by the Bypass Planning Permission, had been constructed and was “opened to the public”.

So far as concerns the state of construction of the Bypass as at 2 November 2009, there is a powerful case for saying that, on any footing, the Bypass had not been constructed because of the incomplete and defective lighting of the Bypass at that date. The section 106 Agreement defined the Bypass as including “ancillary engineering operations” pursuant to the Bypass Planning Permission; the latter granted permission for the Bypass “including ancillary engineering operations”; Condition C8 of the Bypass Planning Permission required the lighting scheme to be agreed with the Council and implemented, as approved, before the development was brought into use. Persimmon accepts that, as at 30 October 2010, 18 of the 75 lamp columns on the Bypass, that is almost 25 per cent, were not in operation. It appears that all 12 of those which should have illuminated the central roundabout leading up to the Property were missing or defective; and it would appear from Persimmon’s Report that “to mitigate this situation” 20 temporary lighting towers were erected and temporary traffic management (that is, a speed restriction) was implemented along the whole length of the Bypass to ensure public safety. There is evidence that one of those towers at the central roundabout blew over, causing broken glass on the carriageway. As Mr John Randall QC, for Bovis, pointed out, although the Council did not serve an enforcement notice in respect of Condition C8 of the Bypass Planning Permission, there is nothing to suggest that the Council had legally waived its requirements.

It is not necessary, however, to form a concluded view on whether or not, for the purposes of clause 18.3 of the Sale Agreement, the defective lighting precluded the Bypass from having been constructed as at 2 November 2009. What is quite clear, in my judgment, is that, even if what had been constructed was the Bypass as defined in the Sale Agreement, it was not “opened to the public” within clause 18.3.2. Despite all that Mr Underwood submitted, the point is a very short one. The definition of the Bypass in the Sale Agreement was of a bypass comprising part single carriageway and part dual carriageway. However, one lane of the whole length of the dual carriageway section of the bypass was not opened to the public until after 2 November 2004. Until after that date, the public only had access to a single lane in either direction. The plain wording of clause 18.3.2 of the Sale Agreement, and the definition of the “By-Pass” in the Sale Agreement, make it simply impossible to contend that, in those circumstances, the Bypass was opened to the public by the time Bovis served notice exercising the Option. The position might well have been different if the entire dual carriageway section of the Bypass had at some time prior to 2 November 2004 been opened to the public, and one lane had subsequently been coned off. That, however, was not the position. Furthermore, the reason for the closing off of one lane - that it was due to work to the bridge abutments - is irrelevant.

It is not necessary, therefore, to address the alternative ground in Bovis’s Respondent’s Notice (the suggested implied term in the Sale Agreement) for upholding the Judge’s order.

For the reasons I have given, I would dismiss this appeal.

I agree.

I also agree.